Dems fight over funds left from bailout

Congressional Democrats could be careening toward a head-on collision with the White House over $200 billion in leftover bailout money — money that Republicans think should simply be returned to taxpayers.

The Treasury Department is pushing for fiscal prudence and wants to use the money to pay down the deficit and keep a small rainy-day fund in case of economic catastrophe.

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But Democrats are salivating over the possibility of $200 billion in unspent money.

House Democratic Caucus Chairman John Larson of Connecticut wants dough to fund job-creation legislation. Massachusetts Rep. Barney Frank, the powerful chairman of the House Financial Services Committee, wants to direct $2 billion of repaid Troubled Asset Relief Program funds to loans for unemployed homeowners so they can avoid foreclosure. House Speaker Nancy Pelosi of California admits that “there’s a good bit of interest” in spreading the money around to various economic projects.

Republicans, who regret ever voting for the $700 billion bailout in the first place, are moving in for the kill, convinced that a deficit-weary nation would thank them for pulling the plug on the great bank bailout of 2008.

“We don’t need it anymore, and the American people never liked it. Let’s just do away with it,” Rep. Michael Burgess (R-Texas) told Treasury Secretary Timothy Geithner during a hearing Thursday.

The White House realizes its goals clash with Democrats in Congress.

“As people on the Hill realize that there was money allocated and not spent, it becomes attractive. We need to find ways to make that less attractive,” said a senior administration official.

News reports in recent weeks and sources close to Treasury indicate that Geithner and his team are leaning toward extending the bailout fund beyond its Dec. 31 expiration date while putting some of the funds toward the deficit. But administration officials pushed back against those reports Thursday, stressing that no decisions have been made and that an announcement on the issue is far from imminent.

Geithner did some pushback himself, telling members of the Joint Economic Committee, “We are working to put TARP out of its misery, and no one will be happier than I am to see that program terminated.”

But under Burgess’s pummeling to just end the program, Geithner said that “this economy still faces tremendous financial challenges,” ticking off the continued problems in the housing market and small-business sector.

The conflicting messages coming from the administration highlight the perils of its position on this issue.

The White House has signaled that it wants to dedicate 2010 to deficit reduction, and putting the bulk of TARP funds into paying down the debt could please budget hawks on the Hill. But it also wants to keep an emergency fund just in case.

“The question is, what can you keep in your hip pocket for if the world collapses again?” said the senior administration official.

“They need it. We’re not out of the woods yet. ... [But] they’re struggling because the optics suck,” said an industry official familiar with the situation.

“They were leaning toward doing it, but now it gets even messier ... with Geithner’s latest troubles over AIG,” the official said, referring to a report by TARP’s watchdog this week that slammed Geithner’s handling of the American International Group bailout while heading up the New York Federal Reserve Bank.

But while administration officials are trying to see the big picture on the deficit, lawmakers see a chance to play the populist role.

“It was taxpayers who rescued Wall Street. Now it is time for Wall Street to contribute to the growth of Main Street,” Larson said this week.